Question

Brown Inc. manufactures and distributes two types of household items. The items, Mops and Dusters, are manufactured on a common assembly line by the same direct labourers. Different direct materials are used in each type, and the machinery is retooled for each product. Until now, manufacturing overhead costs have been allocated on the basis of direct labour-hours using a plantwide rate. However, the production manager has been reading about ABC and wishes to institute it for Brown’s production operations. To that end, she has assembled the following information regarding production activities and manufacturing overhead costs for the month of September:

	Cost Driver				Activity Usage
Activity Cost Pool	(activity base)	Allocation Rate			Mops			Dusters
Materials handling	Number of parts	$	1.00	per part		1,700	parts		1,150	parts
Machining	Machine-hours	$	11.00	per machine-hour		170	machine-hours		260	machine-hours
Assembly	Units started	$	1.60	per unit		850	units		1,150	units
Inspection	Units tested	$	2.00	per unit		85	units		1,050	units
Direct materials					$	4,250		$	2,300
Direct labour					$	10,200		$	10,200

Each product consumed 510 direct labour-hours.

Required:

1.	Using ABC, determine the total manufacturing cost and cost per unit for each of the two product lines for September, assuming that all units were started and completed in September. (Round "Cost per unit" answers to 2 decimal places.)

Mops Dusters

Total Manufacturing Cost

Cost per unit

2.	Using the plantwide rate to allocate manufacturing overhead, determine the total manufacturing cost per unit for each of the two product lines for September, assuming that all units were started and completed in September. (Round "Cost per unit" answers to 2 decimal places.)

      

Mops Dusters

Total Manufacturing Cost

Cost per unit

Answer 1

1.

	Mops	Dusters
Direct Material Cost	$            4,250	$           2,300
Direct Labor Cost	$          10,200	$        10,200
Manufacturing Overhead
Material Handling	$            1,700	$           1,150
Machining	$            1,870	$           2,860
Assembly	$            1,360	$           1,840
Inspection	$                170	$           2,100
Total Manufacturing Overhead	$            5,100	$           7,950
Total Costs	$          19,550	$        20,450
Units	850	1150
Unit Cost	$            23.00	$          17.78

2. Plant wide overhead rate = $13050/1020 = $12.79 per hour

	Mops	Dusters
Direct Material Cost	$            4,250	$           2,300
Direct Labor Cost	$          10,200	$        10,200
Total Manufacturing Overhead	$            6,525	$           6,525
Total Costs	$          20,975	$        19,025
Units	850	1150
Unit Cost	$            24.68	$          16.54